In one of the prevalent trends of our time, another broker has jumped to the buyside. Richard Magides, the old Malaysian hand who ran RHB Securities for Rashid Hussain (as COO),has moved to Singapore to set up Artradis, a hedge fund.
He has been joined by four others, including a former head of a top investment bank's emerging market business, who will relocate to Asia from London.
Artradis will be a market neutral fund that will adopt different strategies in order to make an absolute annual return in the region of 20%. "The Asian markets cover a wide range of sizes and liquidities," says Magides "and a common feature is that, of all the world's equity markets Asian markets provide the best combination of large and exploitable inefficiencies."
Enter the concept of arbitrage. Magides says the fund will earn good returns regardless of market direction, as it is simply exploiting these inefficiencies and is neither going net long like conventional fund managers, nor net short. It will balance all its positions - hence the 'market neutral' tag.
Magides also says the multi-strategy approach allows the fund to reduce overall volatility in its returns. Atradis wants to be transparent about its trading strategies (especially after the LTCM debacle). He says these strategies will include index arbitrage, warrants arbitrage, ADR arbitrage, merger arbitrage, convertible bond arbitrage, volatility arbitrage, and dividend arbitrage.
It is important to have multiple strategies, he says, as many strategies, such as convertible bond arbitrage are highly cyclical. The fund will act in all the major Asian markets including Japan.
The various partners in the fund each have over15 years of experience in Asia and Magides said he ran many of the above trades at RHB, where returns in excess of 20% were made. "However, it's better to be conservative," he adds, "so 20% is the number we are using as a target for investors."
Magides has raised between $5-10 million from rich individuals, and says he is comfortable starting small. However, his back office is being handled by Goldman Sachs' prime brokerage and it is taking him on a one week roadshow to Europe and the US to seek further interest.